A Ponzi scheme?

A Ponzi scheme is a fraudulent investment operation that pays returns to investors out of the money paid by subsequent investors rather than from profit. The term, "Ponzi scheme," is used primarily in the United States, while other English-speaking countries like Naija do not distinguish colloquially between this scheme and other pyramid schemes.

The Ponzi scheme usually offers abnormally high short-term returns in order to entice new investors. The perpetuation of the high returns that a Ponzi scheme advertises and pays requires an ever-increasing flow of money from investors in order to keep the scheme going.

The system is destined to collapse because the earnings, if any, are less than the payments. Usually, the scheme is interrupted by legal authorities before it collapses because a Ponzi scheme is suspected or because the promoter is selling unregistered securities. As more investors become involved, the likelihood of the scheme coming to the attention of authorities increases.


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Hypothetical example

Suppose an advertisement is placed that promises extraordinary returns on an investment ? for example, 20% on a 30-day contract. The objective is to deceive laypeople who have no in-depth knowledge of finance or financial jargon. Verbal constructions that sound impressive but are essentially meaningless will be used to dazzle investors: terms such as "hedge futures trading," "high-yield investment programs," "offshore investment" might be used. The promoter will then proceed to sell investors--who are essentially victims of a confidence trick--stakes, by taking advantage of a lack of investor knowledge or competence.

Without the benefit of precedent or objective prior information about the investment, only a few investors are tempted, usually for smaller sums. Thirty days later, the investor receives the original capital plus the 20% return. At this point, the investor will have more incentive to put in additional money and, as word begins to spread(investor telling friends of it), other investors grab the "opportunity" to participate, leading to a cascade effect deriving from the promise of extraordinary returns. However, the "return" to the initial investors is being paid out of the investments of new entrants, and not out of profits.

One reason that the scheme initially works so well is that early investors ? those who actually got paid the large returns ? commonly reinvest their money in the scheme (it does, after all, pay out much better than any alternative investment). Thus those running the scheme do not actually have to pay out very much (net) ? they simply have to send statements to investors showing them how much they earned by keeping the money, in order to maintain the deception that the scheme is a fund with high returns.

Promoters also try to minimize withdrawals by offering new plans to investors, often where money is frozen for a longer period of time, in exchange for higher returns. The promoter sees new cash flows as investors are told they could not transfer money from the first plan to the second. If a few investors do wish to withdraw their money in accordance with the terms allowed, the requests are usually promptly processed, which gives the illusion to all other investors that the fund is solvent.

The catch is that at some point one of three things will happen:

   1. The promoters will vanish, taking all the remaining investment money (minus the payouts to investors) with them;

   2. the scheme will collapse under its own weight, as investment slows and the promoters start having problems paying out the promised returns (the higher the returns, the greater the chance of the Ponzi scheme collapsing). Such liquidity crises often trigger panics, as more people start asking for their money, similar to a bank run;

   3. the scheme is exposed because the promoter fails to validate their claims when asked to do so by legal authorities.



                                       
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What is not a Ponzi scheme

A multilevel pyramid scheme is a form of fraud similar in some ways to a Ponzi scheme, relying as it does on a disbelief in financial reality, including the hope of an extremely high rate of return. However, several characteristics distinguish these schemes from Ponzi schemes:
          o In a Ponzi scheme, the schemer acts as a "hub" for the victims, interacting with all of them directly. In a multilevel scheme, those who recruit additional participants benefit directly (in fact, failure to recruit typically means no investment return).

          o A Ponzi scheme claims to rely on some esoteric investment approach, insider connections, etc., and often attracts well-to-do investors; multilevel schemes explicitly claim that new money will be the source of payout for the initial investments.
          o A multilevel scheme is bound to collapse a lot faster, due to the necessity of exponential increases in participants to sustain it. By contrast, Ponzi schemes can survive simply by persuading most existing participants to "reinvest" their money, with a relatively small number of new participants.

    * A bubble. A bubble relies on suspension of disbelief and an expectation of large profits, but it is not the same as a Ponzi scheme. A bubble involves ever-rising (and unsustainable) prices in an open market (be that shares of a stock, housing prices, the price of tulip bulbs, or anything else). As long as buyers are willing to pay ever-increasing prices, sellers can get out with a profit. And there doesn't need to be a schemer behind a bubble. (In fact, a bubble can arise without any fraud at all - for example, housing prices in a local market that rise sharply but eventually drop sharply because of overbuilding.) Bubbles are often said to be based on "greater fool" theory. Although, according to the Austrian Business Cycle Theory, bubbles are caused by expanding the money supply beyond what genuine capital investment supports, and in this case would qualify as a Ponzi scheme, with expanded credit taking the place of an expanded pool of investors.

    * Although non-fraudulent in intent, a pension fund can share some of the characteristics of a Ponzi scheme in that, except during the final period of the fund's life-span, the outgoing cash used in any month to pay pensions is usually taken from the incoming contributions of the active members of the pension scheme. In a year of poor equity returns such as 2008, a pension fund can often perform worse for its members than a Ponzi scheme.

    * Robbing Peter to pay Paul. When debts are due and the money to pay them is lacking, whether because of bad luck or deliberate theft, debtors often make their payments by borrowing or stealing from other investors they have. It does not follow that this is a Ponzi scheme, because from the basic facts set out there is no indication that the lenders were promised unrealistically high rates of return via claims of unusual financial investments. Nor (from these basic facts) is there any indication that the borrower (banker) is progressively increasing the amount of borrowing ("investing" to cover payments to initial investors (as, again, Ponzi was not the first to do).



                                                 
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Top 10 investing scams-By CNNMoney

Someone's always ready to empty the pockets of the investor who's overly eager for outsized returns. Here are the most prevalent schemes.

The stock market has picked up steam lately, but for many investors the resurgence isn't enough. Instead, they look for quicker ways to bolster their portfolios. The problem is, some promised high-return opportunities are downright frauds.

Ponzi scammers top the list of scam artists taking return-hungry investors to the cleaners, according to the latest look at the investment industry by the North American Securities Administrators Association. A close second is investment fraudsters targeting seniors.

"These schemes offer products and pitches that may sound tempting to many seniors who've seen their retirement accounts and income dwindle in recent years," says Ralph A. Lambiase, NASAA president and director of the Connecticut Division of Securities. "It pays to remember that if an investment opportunity sounds too good to be true, it usually is."

A promise of 40% returns?
The quest for a safe investment vehicle is the common theme in all the scams. Here are the top 10, ranked roughly in order of prevalence or seriousness:

1. Ponzi schemes. This is an old scam named for Charles Ponzi, a swindler from the early 1900s who conned $10 million from investors by promising 40% returns. His scam has been copied by countless crooks. The formula is simple: Promise high returns to investors and use their money to pay previous investors.

According to the NASAA, Ponzi scammers often blame government intervention for the failure of their system. In Mississippi, two Ponzi scammers pled guilty to a scheme that bilked 41 investors from four states out of $10.2 million. They told investors they were taking part in a money-trading program. The program never existed.

2. Senior investment fraud. Record-low investment rates, rising health care costs and an increased life expectancy have set seniors up as targets for con artists peddling investment fraud -- like Ponzi scams, unregistered securities, promissory notes, charitable gift annuities and viatical settlements. In 2003, Pennsylvania securities regulators shut down a Ponzi scheme that bilked $2 million from seniors' pensions and IRAs.

3. Promissory notes. These are short-term debt instruments often sold by independent insurance agents and issued by little-known or nonexistent companies. They typically promise high returns, upward of 15% monthly, with little or no risk.

Bad brokers and not-really-brokers

4. Unscrupulous stockbrokers. As share prices tumble, some brokers cut corners or resort to outright fraud, say state securities regulators. And investors who have grown more cautious and scrutinized their brokerage statements have discovered their financial adviser has been bilking them via unexplained fees, unauthorized trades or other irregularities.

5. Affinity fraud. Taking advantage of the tendency of people to trust others with whom they share similarities, scammers use their victim's religious or ethnic identity to gain their trust and then steal their life savings. The techniques range from "gifting" programs at churches to foreign exchange scams.

6. Unlicensed individuals, such as independent insurance agents, selling securities. From Washington state to Florida, scam artists use high commissions to entice independent insurance agents into selling investments they may know little about. The person running the scam instructs the unlicensed sales force to promise high returns with little or no risk.

This scam has made the top 10 list three years running.

Investors approached by an independent agent should first call the state's securities regulator and ask if the salesperson is licensed. Then ask whether the investment being offered is registered as well. If the answers are yes, the investors should be more comfortable about the product. But investors should review the product with the same healthy skepticism that they would any investment opportunity.

Conspiracies behind every tree

7. "Prime bank" schemes. Con artists promise investors triple-digit returns through access to the investment portfolios of the world's elite banks. Purveyors of these schemes often target conspiracy theorists, promising access to the "secret" investments used by the Rothschilds or Saudi royalty. In an effort to warn investors, the Federal Reserve pointed out that these don't exist. But unfortunately, that government denouncement just feeds into the conspiracy mindset linked to this scam.

8. Internet fraud. According to NASAA, Internet fraud has become a booming business. For example, federal, state, local and foreign law-enforcement officials targeted Internet fraudsters during Operation Cyber Sweep in November 2003 -- and identified more than 125,000 victims with estimated losses of more than $100 million.

"The Internet has made it simple for a con artist to reach millions of potential victims at minimal cost," says Lambiase. "Many of the online scams regulators see today are merely new versions of schemes that have been fleecing off-line investors for years."

Lambiase warns consumers to avoid the infamous Nigerian 419 scam, saying Internet users should ignore e-mails from individuals in need of help who want to deposit money in overseas bank accounts.

"Don't be dot-conned," he says. "If you get an e-mail pitching a deal that can't be beat, hit delete."

Funds and annuities

9. Mutual fund business practices. Recent mutual fund scandals have made the national news and attracted the attention of investors and launched several investigations.

"These investigations demonstrate a fundamental unfairness and a betrayal of trust that hurts Main Street investors while creating special opportunities for certain privileged mutual fund shareholders and insiders," says Lambiase. "We will continue to actively pursue inquiries into mutual fund improprieties," he says.

10. Variable annuities. As sales of variable annuities have risen, so have complaints from investors -- most notably, the omission of disclosure about costly surrender charges and steep sales commissions. According to the NASAA, variable annuities are often pitched to seniors through investment seminars -- but regulators say these products are unsuitable for many retirees. Lambiase says variable annuities make sense only for consumers who can afford to have their investment locked up for 10 years or longer.

"Our fight against fraud never stops because each year con artists discover new ways to fleece the public," says Lambiase. "Sadly, many of the age-old scams still work to cheat victims of their hard-earned savings as well."



                                                 
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Preventing Credit Card Fraud


Credit card fraud is one of the most common scams in the world. There are several ways to prevent this.

Advice1

1. Always sign your cards, or write ?See I.D? on them; do it as soon as soon as possible.

2. Keep a careful record of your accounts: void incorrect receipts, destroy carbons, save receipts to compare with billing statements, open bills promptly and reconcile accounts monthly.

3. Don?t give out your account number over the phone unless you're making the call to a company you know is reputable; check it out with your local consumer protection office or Better Business Bureau.

4. Do not lend your credit card(s) to anyone.

5. Collect your credit card receipts and keep them secure

6. Never sign a blank receipt, and always draw a line through any blank spaces above the total.

7. Keep your cards separate from your wallet to thwart would-be pickpockets.



                                         
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Advice2.
nline Credit Card Fraud is a major problem for any online business. Savvy Internet scammers have developed many ways to obtain and use credit card information to victimize both the cardholder and Internet businesses. Fortunately there are some ways to mitigate or eliminate the impact of Online Credit Card Fraud. Remember: the best way to guard against Online Credit Card Fraud is simply to get plenty of information and to verify orders with cardholders.

? Use the Phone to Verify Orders: It?s simple and effective.

? International Orders are Red Flags (especially to Nigeria): These are more likely to be fraudulent due to anonymity.

? Be Wary of Rush Orders: Crooks want to get the goods ASAP to prevent detection from legitimate cardholders.

? Take Note of Peculiar Shipping Addresses: Thieves like mail drops they can acquire with false I.D.?s, like private P.O.B.?s.

? Watch Out for Orders From Free E-mail Accounts: Anonymity is the thief?s friend; get more personal info 1st.


To be continued, Lets join hands n get scammers off our back by contributing to this thread; share your experience here fellas



                                             
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TYPES OF ONLINE FRAUD

Re:Credit Card Online Fraud

Credit Card online fraud is a very common problem in today’s world. Some people do not bother much about it and for some people it is unavoidable because the con artist is able to gain the confidential credit card information via scam. To some extent the risk of online fraud can be reduced.

• Do not ever allow the card out of your sight

• Check your payment receipt every time and make sure the amount is correct

• Try not to write the pin number anywhere and memorize it well

• Get the card cancelled if misplaced in any case

• Be careful while making big transactions

• Be careful while responding to special offers online

E-mail Online Fraud

E-mail is an inexpensive way and popular method for distributing fraudulent messages, so we should never respond to mails that seek personal information or involves money issues. So to avoid e-mail fraud we can follow some steps:

• Don’t trust mails which say they are from bank

• Don’t trust links in e-mails, they might be fraud

• Don’t respond to mails asking for personal information

• Don’t trust any mails asking for help or charity purposes

• Don’t get trapped in greed factor

Fake Websites

Cyber criminals are spending millions of pounds setting up fake websites that persuade well-established companies seeking their confidential information. So we should avoid:

• Websites not beginning with “http”, they are not safe

• Do not trust sites which offer big money reward

• Make sure that the site is trust worthy and don’t submit personal information to any flashy site

Lotteries

These scams make us think that we have won a money prize and then they ask us for our personal information regarding our fake winning. We can guess if we are being cheated because:

• You know that u have not participated in any contest, for which they are offering a prize

• You are being asked for any personal information or processing fee

• You are asked for buying low-risk shares for funds

• You are offered bait prizes that are sub-standard

Fake Auctions

Internet is the best option for bidding or selling any stuff but at times it could be very risky. Online fraud auction nearly ranks the top among thousands of online fraud complains. To avoid fake auction results we should:

• Clearly mention when we want our shipment to be delivered

• Study the auction site carefully

• Avoid dealing with unknown sellers

• Consider the method of payment; do not use credit cards

• Know exactly what you are bidding on

No doubt there is tremendous increase in fraudulent online activities but we can always try to move ahead from these sophisticated criminals and prevent online fraud from happening.



                                             
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Secure Your Computer

I think everyone should look into protecting their computer from unwanted Spyware and Adware, I recently had major problems with my computer which had me investing in better security for my browsing needs, before I was pretty careless with my online browsing and would visit many sites thinking I was safe, but unknown to me my computer was being infected with unwanted programs, all attaching to my browser.

Spyware and Adware is software made by publishers that allow them to snoop on your browsing activity, and invade your privacy, they flood you with those horrible pop-ups. If you are like most users on the internet chances are, you are probably infected with these applications or you have a good program that protects you already and your computer system is safe.

My computer was pretty badly infected and I got myself a good computer program, and ended all the Spyware and Adware attached to my computer, it was pretty easy to do and I know that my browser has no unwanted guests.

If you want peace of mind and the knowledge that all your personal and sensitive material you have on your computer is safe, then, maybe this is what you are looking for. This is just one option of many out there. If your computer shows signs of being slow and you are being pestered by those horrible pop-up ads and your homepage keeps changing, then maybe it is time that you looked into protecting your computer. Just don't leave it too late when you can so easily fix all your worries with a simple program designed to remove these bothersome Spyware and Adware attachments.



                                             
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Secure Your Computer

I think everyone should look into protecting their computer from unwanted Spyware and Adware, I recently had major problems with my computer which had me investing in better security for my browsing needs, before I was pretty careless with my online browsing and would visit many sites thinking I was safe, but unknown to me my computer was being infected with unwanted programs, all attaching to my browser.

Spyware and Adware is software made by publishers that allow them to snoop on your browsing activity, and invade your privacy, they flood you with those horrible pop-ups. If you are like most users on the internet chances are, you are probably infected with these applications or you have a good program that protects you already and your computer system is safe.

My computer was pretty badly infected and I got myself a good computer program, and ended all the Spyware and Adware attached to my computer, it was pretty easy to do and I know that my browser has no unwanted guests.

If you want peace of mind and the knowledge that all your personal and sensitive material you have on your computer is safe, then, maybe this is what you are looking for. This is just one option of many out there. If your computer shows signs of being slow and you are being pestered by those horrible pop-up ads and your homepage keeps changing, then maybe it is time that you looked into protecting your computer. Just don't leave it too late when you can so easily fix all your worries with a simple program designed to remove these bothersome Spyware and Adware attachments.


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What is Hacking?

What is your definition of hacking? Most people think of the news stories that relate to big companies having embarrassing problems as their data is compromised. But in truth, hacking goes a lot further than this.

It doesn't always have to be someone you don't know who hacks into your systems and causes problems for your business. It could equally be someone who works for you that doesn't have your best interests at heart. This is because the basic meaning of hacking is when someone accesses some or all of your computer systems without permission. And it doesn't just happen over the internet.

Quite often, many people don't see how widespread computer hacking can be. Assuming that they are only in danger from internet based attacks means they may not be covered for all risks. Even those companies that do all they can to prevent hacking which occurs online may have unwittingly turned a blind eye to other dangers.

This is why an understanding of what hacking is and what it involves can help you to protect your own business more fully. But what do you do if you don't know all the ins and outs of the threats posed?

The easiest solution is to rely on an expert to make sure every potential hole is plugged, and no one can break into your systems. Network penetration testing is one of the best ways to see how good your computer network really is. If you do have vulnerabilities it's best to find out via someone who is honest and is looking for them to benefit you. If you assume everything is okay and it isn't, you could be in for a nasty shock at some point in the future.

It is probably because people limit their definition of hacking that some businesses are more in danger than they realise. Everyone likes to think that all their employees are working honestly and for the company's good, but it doesn't always pan out that way.

Supposing an employee was given notice to leave but they had until the end of the day to clear their desk. They could potentially do a lot of damage to your computer system before they left, if the mood took them that way. Even though you could have them arrested for their actions, the damage would still be done and it would take time to rectify.

An expert in the field of ethical hacking would be able to highlight any potential problems and solve them before anyone else had a chance to exploit them. And that is certainly a service that is worth paying for.

Don't make the mistake of thinking this should only be done once though. Hackers are constantly finding new ways into previously secure systems. If you employ a company to see how up to date your security measures really are, make sure you do it on a regular basis. If you don't, you still run the risk of being caught out.


                                           
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Am back on board!

Watchout for more info

Welcome back on board. Please keep them coming.